Unlocking the Untapped: Addressing the MDU Fiber Opportunity

By Steffen Stern, Dr., CFA , Roman Friedrich , Carolin Bimmermann

In an era when high-speed internet has become a fundamental need, telcos building out fiber (we refer to them as ‘FiberCos’ throughout this article) are facing a significant challenge: addressing the multi-dwelling unit (MDU) fiber market. Following our exploration of the fiber B2B potential, this article pivots to a sector where everyone acknowledges the opportunity but finds it daunting to capitalize on. The intricate task of deploying fiber in MDUs has proven to be a formidable barrier, yet it presents a critical area for innovative strategies and effective solutions. The following delves into the challenges encountered in this market and outlines actionable strategies for FiberCos and real estate companies to effectively seize opportunities within the MDU sector.

The MDU Opportunity: A Win-Win for FiberCos and Property Owners

Globally, the landscape of MDU connectivity represents a diverse potential for FiberCos. From the sparse presence in suburban areas (~10% MDU share) to the dense networks of urban cities (with almost 100% MDU share), MDUs are an integral part of the connectivity ecosystem, often unaddressed due to various complexities. However, diving into this segment reveals a substantial revenue stream that FiberCos have—in certain geographies—barely scratched the surface of. Additionally, it’s noteworthy that MDUs present about ~30% lower Capex compared with single dwelling units (SDUs), enhancing their attractiveness. By failing to consider MDUs, despite their attractiveness, FiberCos forego at least 10% of their revenue potential within their footprint, as is shown in Exhibit 1:

Addressing MDUs not only promises to boost FiberCos’ bottom line, but also presents a golden opportunity to enhance property values through state-of-the-art telecommunications infrastructure, benefiting property owners and tenants alike. Studies from multiple associations, including Fiber Broadband Association, FTTH Council Americas, and German Haus-und-Grund, estimate that equipping homes with fiber increases their value by 3% to 8%, which translates to greater monthly rental income potential for such units.

By rolling out fiber in MDUs, property owners fulfill more than technical needs; they also transform properties into highly desirable living and working environments. Tenants enjoy the convenience and functionality, benefiting from the most reliable, highest-speed, and lowest-latency internet technology that enables a superior service experience for seamless streaming, gaming, remote work, and even such future use cases as augmented reality and the like.

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The Challenges: Navigating the MDU Maze

The journey to fiberizing MDUs is fraught with unique challenges that need to be addressed.

Exhibit 2 illustrates a two-tiered approach to fiberizing MDUs, highlighting the need for collaboration between FiberCos and real estate companies. This process involves the following five key steps, from planning to implementation, impacting both parties:

1. Footprint Match. Geographic misalignments pose a significant challenge, as the coverage areas of FiberCos and MDU owners are often patchy and incongruent. This misalignment can significantly slow down or even halt projects; hence, FiberCos and real estate companies need to close the gaps.
2. Property Owner Alignment. Achieving alignment on the timing and methods of installation is crucial but often difficult due to property owners’ specific demands. Effective engagement and communication between FiberCos and property owners is key to unlocking access and cooperation.
3. House Orchestration. Installing fiber in one apartment at a time is inefficient, but outfitting an entire building at once is complex and requires careful timing. The key is to effectively balance the efficiency of large-scale installations with the logistical and coordination challenges of doing so in an MDU environment.
4. Resident Support. Gaining each resident’s support within an MDU is essential. FiberCos and property owners must communicate effectively, balancing individual installation schedules with overall project timelines, with the former making sure to keep disruptions low for straightforward fiber-socket installations in apartment units.
5. Buildout. FiberCos must develop teams skilled in both external and in-house installations. This requires training for precision work inside homes, ensuring the seamless transition from outdoor infrastructure and rollout to indoor setup, crucial for maintaining service quality.

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In addition, there are the following overarching challenges that permeate the fiberization process:

A. Legal Framework. Complexities around access rights and usage fees are only two examples of legal and regulatory challenges in MDU fiberization. Adapting to varied and changing legal and regulatory landscapes is crucial—for both FiberCos and real estate owners.

B. Property Ownership. Diverse ownership structures of MDU properties demand both adaptability and a subtle strategy: Homeowners’ associations need agreement among many owners, increasing complexity, while large housing companies favor comprehensive solutions and might choose to handle fiberization themselves. Small housing companies and cooperatives tend to hesitate due to lack of expertise and fear of making irreversible choices. FiberCos need to develop strategies to meet the distinct requirements of a diverse property owner landscape and address the ‘long tail’ of MDU property owners. For example, in Germany, this ‘long tail’ accounts for ~90% of the MDU market, as depicted in Exhibit 3. The situation is similar in many other countries.

Being successful in the E2E fiberization of MDUs, and overcoming the associated barriers, requires a tailored, strategic approach, underpinned by a deep understanding of the MDU landscape and a commitment between FiberCos and real estate owners to jointly innovate and collaborate.

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Strategic Imperatives for FiberCos and Real Estate Companies: A Tailored Approach to MDU Connectivity

Both FiberCos and real estate companies require a targeted MDU fiberization approach. Exhibit 4 lays out the key steps to follow and strategic dimensions to consider for both FiberCos and real estate companies. When laying out different buildout approaches, we refer to the following different network levels to specify the different sections of the fiber network (see Exhibit 4):

• Network level 2 (NL2) = backbone
• Network level 3 (NL3) = distribution network (in the street)
• Network level 4a (NL4a) = campus network (optional, typically only in multi-MDU areas)
• Network level 4 (NL4) = inside building
• Network level 5 ?(NL5) = inside flat

For FiberCos eyeing the MDU market, success hinges on the following key steps:

1. Market Analysis and Segmentation. Begin with a comprehensive assessment of the MDU landscape, pinpointing hotspots and recognizing the distinct needs of property owners and tenants. This includes understanding the potential of the MDU market in FiberCos’ specific footprints and evaluating if it aligns with your business objectives.
2. In-Depth Understanding of Ownership Structures. Delve into the specifics of ownership within your footprint, identifying key stakeholders and decision-makers who will impact the fiberization process.
3. Individualized propositions. FiberCos need to develop targeted propositions that cater to the specific needs of different MDU segments. To illustrate the complexity and strategic depth required, consider the following strategic options FiberCos face in addressing MDUs shown in Exhibit 5:

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A.??? Buildout Plans. Shape your infrastructure deployment strategy to suit the varied timelines and installation methods preferred by property owners.

Fiber deployment in MDUs can align with various timelines: during initial construction for seamless integration, or after construction following the request of the property owner or resident. Buildout approaches range from direct Network level 4 fiber installations for optimal connectivity to interim G.Fast or coaxial solutions, inhouse wireless, to hybrid methods tailored to owner preferences and building readiness.

B.????Buildout Scope. The strategic choice for FiberCos extends to whether to construct fiber infrastructure for Network Level 3 only or expand a buildout to include both NL3 and NL4.

C.????Ownership. FiberCos can aim to own only NL3, or NL3 and NL4. This decision affects the degree of control, with the option for shared ownership arrangements with property owners.

D.??? Service Offerings. Define the end-customer offerings based on tenant demographics, whether it’s cost-sensitive offerings or premium service packages. This requires an understanding of the homeowner and tenant needs within your footprint.

E.??? Target Addressees. A clear understanding of the target customer group is required—whether they are property owners or tenants, or both are addressed in a hybrid setup, needs to be defined.

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In cases where a single FiberCo cannot cover an entire housing company footprint, forming alliances with other FiberCos to deliver comprehensive connectivity solutions might be an option.

To further the cause, it is essential to motivate property owners to take an active role in the fiberization initiative by providing the necessary tools and insights. Explain the advantages of fiber connectivity and its potential to increase property value, encouraging their buy-in and participation.

These imperatives highlight the necessity for FiberCos to undertake a detailed and methodical approach when considering the MDU market, ensuring each step is carefully tailored to the intricate dynamics of MDU settings.

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For real estate companies, navigating the shift to fiber in MDUs and defining a clear and actionable roadmap centers on the following series of strategic initiatives:

1. Understanding the Status Quo. Real estate companies should start by understanding the current telecommunications infrastructure in their properties to better plan for fiber upgrades. They also need to understand current contracts in place for their existing in-house infrastructure, and if and how they are currently monetizing this infrastructure, such as with coaxial networks.
2. Defining a Fiber Strategy. These companies need to clarify their strategy regarding fiber infrastructure ownership and determine their openness to various buildout approaches, whether that means working with selected FiberCos for their entire footprint or being open to a buildout approach that might vary from property to property. Real estate companies can investigate the following options to develop their strategies as shown in Exhibit 6:

A.??? Buildout Time. Real estate companies have strategic choices for the timing and scope of their fiber buildout plans. They can integrate fiber during initial construction, minimizing disruption, or during renovations, aligning infrastructure upgrades with property improvements. Alternatively, implementing fiber before a property sale can increase market value.

B.????Buildout Scope. As for scope, real estate companies can choose to buildout in-house Network Level 4 networks and leave Network Level 3 to telcos, or have telcos handle both NL3 and NL4. In cases where real estate companies own multiple properties that are close to each other, they can also expand their NL4 buildout activities beyond the properties themselves, building a campus network that connects multiple buildings.

C. Geographical Expansion. In geographical scaling, real estate companies can choose to deploy fiber in their own select properties, upgrade all existing properties, or expand to nearby properties, balancing between focused improvements and broad market expansion.

D. Partnerships. Companies can aim to have a single partner for all properties, or work with a few selected partners for different regions. They can also choose to not engage in overarching partnerships and instead have each property covered by different players. Recognizing the limited scale of their properties, real estate companies might consider joining forces to enhance their bargaining power and address the fiber potential hand in hand.

E. Product Offering. Real estate companies can strategize an offering strategy by either opting out of the entire fiber process, building fiber and offering it to Telcos to provice end-customer services on these networks, or providing their own telco end-customer service. Each choice varies in investment, involvement, and capabilities required.

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The Path Forward: Realizing the MDU Opportunity

The path to MDU fiberization is paved with the promise of mutual benefits when FiberCos and property owners collaborate. This joint drive for fiberization aligns the diverse interests of both parties, creating a win-win scenario. For property owners, it’s a chance to significantly raise their property’s value and appeal. For FiberCos, it means tapping into new revenue streams and sharpening their competitive edge. Together, they don’t just contribute to the digital transformation of urban and suburban landscapes, they revolutionize it. Now is the time for FiberCos and property owners to act in unison, ensuring high-speed connectivity reaches every door, transforming the way we live, work, and interact.

Joining Forces for a Connected Tomorrow

At BCG, we stand ready to support FiberCos and real estate companies in navigating the complexities of the MDU market. With our deep industry expertise and strategic insights, we can help you devise and implement the strategies that will turn challenges into opportunities, ensuring that the benefits of fiber connectivity reach every corner of the multi-dwelling landscape.

We invite you to explore this frontier with us. Let’s connect the future, together.

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